FAQ · 6 min read

How to Report Below-Grade Finished Area in an Appraisal

Below-grade finished area (BGFA) does not count as GLA -- but it is not ignored either. Appraisers report it separately, adjust for it in the sales comparison grid, and it contributes real value to the property. Here is the right way to handle it.

What qualifies as below-grade finished area

Under ANSI Z765-2021, a space is below grade if any portion of its floor is at or below the exterior grade line on any side of the home. This includes:

• Traditional basements (fully below grade on all sides)
• Walkout basements (below grade on at least one side, even if fully open on another)
• Daylight basements with window wells
• English basements (partially below grade)

A below-grade space is considered "finished" when it meets habitable standards: permanent flooring, finished walls, finished ceiling, and adequate heating. Space used for mechanical systems, unfinished storage, or utility areas is not finished area -- even if it is accessible.

Where BGFA appears on the URAR form

On the standard URAR (Fannie Mae Form 1004), below-grade finished area is reported in the Basement & Finished Rooms Below Grade section of the improvements grid. The appraiser enters:

• Total basement area: Total square footage of the basement footprint (finished and unfinished)
• % finished: What percentage is finished to habitable standards
• Rooms below grade: Bedroom count, bathroom count, and other rooms (rec room, study, etc.)

This section is separate from the "Above Grade Room Count" at the top of the grid, which is where GLA and above-grade room counts appear. The two should never be combined.

How to adjust for BGFA in the sales comparison grid

When using comps that have different below-grade finished areas than the subject, the appraiser makes a line-item adjustment in the sales comparison grid. The adjustment reflects the market's valuation of below-grade space -- which is typically less per square foot than above-grade GLA.

How much less depends on the market. In most residential markets, finished basement space sells for roughly 50 to 70 percent of the value of comparable above-grade square footage. In some markets (high-demand urban areas, for example), the gap is smaller. In rural or slower markets, it may be larger.

The appraiser must support this adjustment with market evidence -- typically paired sales analysis comparing otherwise similar homes with and without finished basements.

Common reporting errors

• Including BGFA in the GLA total. The most common mistake. Above-grade GLA and below-grade finished area are reported in separate fields. Combining them overstates GLA and violates ANSI Z765.
• Matching the MLS or assessor number without verification. MLS listings and county assessors often include finished basements in total square footage figures without flagging them as below-grade. The appraiser is responsible for correctly separating above and below grade regardless of what the MLS shows.
• Treating a walkout basement as above grade. A walkout basement is still below grade under ANSI Z765 if the floor level is below grade on any side. The open walkout wall does not change the grade determination.
• Omitting BGFA entirely. Below-grade finished area that is omitted from the report creates an incomplete, misleading appraisal. Even if it does not count as GLA, it contributes value and must be disclosed.

Fannie Mae and UAD requirements

Fannie Mae's Selling Guide (B4-1.3-05) requires appraisers to use ANSI Z765 for GLA measurement on all conventional loan appraisals as of October 2022. The guide explicitly states that below-grade finished area must be reported separately from above-grade GLA, and that adjustments for BGFA must be supported.

UAD (Uniform Appraisal Dataset) definitions align with ANSI Z765 on above/below grade distinctions. Appraisers who submit reports through AMCs or directly to lenders are expected to follow these definitions consistently.

Measuring BGFA from a floor plan

If you have a floor plan that includes the basement level, measuring BGFA works the same way as measuring above-grade GLA -- trace the perimeter of the finished portion, set the scale, and get the square footage. The key is measuring only the finished area within the basement footprint, not the full basement if parts are unfinished.

Many CubiCasa, Matterport, and iGUIDE scans include a basement floor plan as a separate level. Each level is measured independently, then reported in the appropriate section of the appraisal form.

Related resources

• Finished Basement GLA Rules: What Counts Under ANSI Z765?
• Walkout Basement GLA: Does It Count?
• What Is Above Grade vs. Below Grade in Appraisals?
• Fannie Mae Square Footage Requirements: ANSI Z765 Mandate
• Above-Grade vs. Below-Grade Square Footage: Full Explainer
• GLA vs Total Square Footage: What Is the Difference?
• ANSI Z765 vs BOMA: Square Footage Standards Compared